Redemption Decade: California home-price gains double the nation’s - OCRegister

With the 2010s at their end, our “Redemption Decade” series explores how California’s economy rebounded from the destruction of the Great Recession. This is Part 2: Housing.

California’s fierce debate over high-cost housing says volumes about the state’s recovery from the real estate crash of a decade ago. Bad bets on high-risk mortgage lending put property owners in deep financial distress and slashed overall values.

Here’s how my trusty spreadsheet sets the scene:

Then: California’s median sales price of an existing single-family home tumbled 21% in 2009 to $274,960 after falling 38% the year before, stats from the California Association of Realtors show. Rents — as measured by an average of consumer price data for Los Angeles, San Francisco and San Diego — rose 2.4% in ’09 compared to 4.4% in 2008 before falling (yes, rents were falling) 0.1% in 2010.

Now: So far in 2019, house prices are up 5% to $605,680 while rents are up 4.2%.

The decade: California house prices rose 120% vs. 26% in the 2000s. Rents are up an average 3.5% in the 2010s vs. 4.6% in the previous 10 years.

The redemption

A decade ago, California’s housing crisis was about people who could not afford the home they owned.

Ultra-aggressive lending put too many homeowners into mortgage payments they couldn’t make for homes that proved to be badly overvalued. Developers took in equally easy-to-get money and overbuilt residential and commercial properties.

When it all began to unravel in the middle of the 2000s, the fallout was widespread. Not only did real estate suffer, but the pain dispersed into any business that took in property-related cash. So as 1-in-13 California jobs disappeared between 2008 through 2010, the state had few buyers in a market flooded with desperate sellers.

Home values plummeted by more than half in 2008-09 and made a mess of 2009 selling conditions. Some 71% of home sales statewide were either foreclosure-related or a “short sale,” in which case a lender agreed to accept less than what was owed on the collateral, according to Attom Data Solutions.

Trust me, 10 years ago few would predict today’s far healthier conditions. Distressed sales represent just 7% of statewide sales, leaving many to complain there are no housing bargains to be found.

Let me use a simplistic measurement of California’s “premium” house pricing — the ratio of California’s median to a comparable U.S. midpoint — to convey the pricing crunch.

Over the past 50 years, California houses sold on average for 70% more than a typical U.S. residence. And the last time California shoppers could buy at below-average valuations was … you guessed it … 2009. So you see what economic devastation can do for “affordability.”

Fast-forward to the end of this decade and a California house hunter will pay 2.2 times what a typical American home costs. The Golden State’s home prices have rebounded at twice the U.S. upswing: up 120% since 2009 vs. 60% nationwide.

And renters, by my three-metro California index, are hard hit, too: paying 41% more over the past five years. That’s well above the 27% average for half-decade periods in the past 50 years and the biggest jump since 2005.

The “whys” behind these growing price gaps are by no means simple.

One cause seems to be forgotten: The real estate collapse into the Great Recession wiped out many builders.

In the five years ended 2012, residential construction ran at one-third the historical pace due to a dearth of lenders and real estate investors willing to fund development. Even with homebuilding’s return to 70% of its historical California pace in the past five years, the decade’s construction shortfall is eye-catching.

California has built just 8% of the nation’s new residential units in the 2010s. That’s well below the state’s 11.5% slice of U.S. residential construction seen during the previous four decades.

And clearly, residential construction failed to keep pace with California employers’ thirst for workers. In the dark days of 2009, I can all but guarantee that nobody predicted the state’s employers would become the nation’s greatest jobs machine.

California created 15% of the nation’s new jobs in this decade’s post-meltdown recovery. Who could have planned for a nation-leading employment boom that far outstrips the 12% share of U.S. job growth California accounted for over the previous 40 years?

This decade’s hiring spree is almost twice the state’s construction share of U.S. homes built in the 2010s. It adds up to a new-homes-to-new-workers gap (3.4 hires for each new residential unit this decade vs. 1.1 historically) that fuels California’s outsized real estate prices increases.

So 2019’s housing crisis — how demand now overwhelms supply — can be viewed, in part, as one painful price of unexpected economic success.

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November 29, 2019 at 11:00PM
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Redemption Decade: California home-price gains double the nation’s - OCRegister
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